NRI guide to property investment in India

A place in the homeland usually gives a sentimental support and sense of security, which is the other reason of investment in real estate by NRIs.

InvestmentYogi.com | Last Updated: May 31, 2013 11:39 (IST)

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NRIs have always been opportunistic in terms of investment avenues and returns. The government regularly comes up with new schemes to attract more and more investments from abroad. Real estate is one of the sectors which always grabs the attention of non-residents.

The Reserve Bank of India has also given permission to all non-residents who possess Indian passports as well as people of Indian origin to put their money in the real estate sector (residential as well as commercial property). The number of NRIs investing in real estate is increasing fast as the value of the rupee is depreciating and real estate offers better returns. A place in the homeland usually gives a sentimental support and sense of security, which is the other reason of investment in real estate by NRIs.

The RBI along with the Foreign Exchange Management Act (FEMA) has become lenient in terms of rules and regulations for non-residents who are looking for an investment in real estate. They are not only simplifying the rules but also providing the benefit of repatriation of the capital involved. The government is planning some investment growth activities through their investment promotional council, to create an environment appropriate for non-residents to put money.

How can NRIs invest in real estate? According to the regulations of FEMA and RBI, an NRI is permitted to make specific investment in real estate. A NRI is allowed to do the following investments in property:

1. Any immovable property can be purchased by an NRI in India other than any agricultural land, farm house and plantation property.

2. He can get any immovable property as mentioned above by gift from Indian resident, Indian citizen residing outside India or person of Indian origin.

3. Obtain any property by inheritance.

4. He can transfer immovable property to any resident of India by sale.

5. He can transfer any agricultural land, farm house or plantation land to any resident of India by gift.

6. He can also transfer his residential or commercial property by means of gift to any person either residing in India or abroad or person of Indian origin.

Sources of finance: NRIs consider financial institutions as an easy option available in India for purchasing any property. At the same time financial institutions consider NRIs as their potential clients. Financial institutions provide home loans easily, efficiently and sooner to such people as they are very much prompt at the time of repayment. Furthermore, the repayment can readily be done by inward remittance through the proper banking channel. If someone is already getting income in India from sources like rent or dividend, he/she can directly repay the loan as well.

Now RBI has also predetermined these norms in home loans for non-residents who are looking forward to buying any property:

1. A maximum of 80 per cent amount is financed by the financial institution. The rest should be given by the NRI.

2. The remittance of the amount for down payment can be done from the place of residence by normal banking channels, i.e., NRO/NRE account in India.

3. The NRI has to repay his principal amount as well as interest part from that similar channel only.

Tax implications for NRIs looking for property in India: An NRI has to shell out stamp duty as well as registration fees at the time of purchase. He is entitled to avail all sorts of benefits at par with Indian residents on the interest paid for the home loan. However, the tax process becomes full of twists and turns if the property is leased.

As the amount of income received from such action comes under the head of income from property, therefore, standard deduction is applicable as per the standard slab. In this case, the NRI will have to pay the applicable tax if he is residing in the country where worldwide income is taxable unless the country has Double Tax Avoidance Agreement with India.

The special advantage for an NRI is the amount which is paid for the interest of home loan is deductible from NRI's taxable income without any upper limit. The NRI is legally responsible for the payment of capital gains tax as prescribed under the Income Tax Act, in case he sells off the property.

Points to be considered at the time of purchase: Investment in real estate is a simple move but there are several drawbacks as well. So, one should be cautious enough at the time of purchase to secure the deal. Few points of consideration are under:

Property name: The name of property should be clear from issues and the seller should have the required right to sell it, especially if it is inherited or any joint property.

NDC: Always check that there will be no outstanding electricity/water bills or any other authority dues pending with the property. Take a no dues certificate from the seller at time of purchase.

Bank release letter: It is advisable to take the bank release letter from the concerned bank, if the property had been mortgaged as security in any type of loan.

Permits: The property of sale should have all approvals and permits from the civic authorities in terms of construction.

Always make a safe deal Whenever an NRI plans to invest in real estate, he should go through the proper channels, either through a friend or relative to ensure the authenticity of property.

He can also approach through property expos and seminars to choose a right property. A reputed developer can provide a clear title property free from a lawsuit. These developers will also take care of maintenance of the property after purchase as well.

A word of caution should be taken by NRIs as these dealers may provide incorrect or misleading information regarding property. Always cross check with reliable source to save your investment.